Hurray! Now Dividends Can Not Be Taxable, Note The Terms

The Covid-19 pandemic that has hit Indonesia is now almost two years old. In addition to affecting public health, the pandemic has also greatly affected the economy. The pandemic hit the Indonesian economy to minus 2.07 percent during 2020 and continued to minus 0.74 percent in the first quarter of 2021. Although in the second quarter of 2021 the economy had increased by 7.07 percent and continued to increase by 3.51 percent in the third quarter of 2021, but the Indonesian economy has not fully recovered.

The economy, which was badly hit during the pandemic, did not dampen the interest of the Indonesian people to invest in the capital market. The number of Indonesian investors during 2020 continues to increase every month and Indonesia’s investment climate is still in a positive trend.

Based on data from the Indonesian Central Securities Depository (KSEI), the number of capital market investors has reached 6.43 million investors as of the end of September 2021. This number recorded an increase of 5.41 percent on a monthly basis from August’s position of 6.10 million investors. Meanwhile, throughout this year, the number of capital market investors has managed to grow by 65.73 percent. Because at the end of 2020 the number of Indonesian investors is still 3.88 million investors.

There are two kinds of profits obtained by a capital market investor, namely dividends and capital gains. Dividends are profit sharing given by the company. Dividend distribution is carried out after obtaining approval from the shareholders at the General Meeting of Shareholders (GMS). Meanwhile, Capital Gain is the difference between the purchase price and the selling price formed by the stock trading activity in the secondary market. For example, investors buy shares of PT. Figures with a price per share of Rp. 3,000.00 then sell it at a price of Rp. 3,500.00 per share, which means that the investor gets a capital gain of Rp. 500.00 for each share he sells.

In Law Number 7 of 2021 concerning the Harmonization of Tax Regulations (UU HPP) several points for the imposition of Income Tax (PPh) are revised. In Chapter III Article 4 paragraph (3) letter f it is regulated that dividends or other income are excluded from tax objects as long as they meet the following provisions.

First, dividends originating from within the country that are received or obtained by domestic individual taxpayers as long as the dividends are invested in the territory of the Unitary State of the Republic of Indonesia within a certain period of time; and/or domestic corporate taxpayers;

Second, dividends originating from abroad and after-tax income from a permanent establishment abroad received or obtained by a domestic corporate taxpayer or a domestic individual taxpayer, as long as it is invested or used to support other business activities in the territory of the Unitary State. Republic of Indonesia within a certain period of time, and fulfill the requirements.

Such requirements, such as dividends and after-tax income, are invested at least 30% of the profit after tax; dividends originating from overseas business entities whose shares are not traded on the stock exchange are invested in Indonesia before the Director General of Taxes issues a tax assessment letter on the dividends; or dividends originating from abroad are dividends distributed from overseas business entities whose shares are traded on the stock exchange or whose shares are not traded on the stock exchange in accordance with the proportion of share ownership.

As for what is meant by dividends in the HPP Law, it is part of the profits earned by shareholders or insurance policy holders. Included in the definition of dividend is the distribution of profits, either directly or indirectly, by name and in any form; repayment due to liquidation that exceeds the amount of paid-in capital; the distribution of bonus shares without deposit, including bonus shares derived from the capitalization of premium shares; profit sharing in the form of shares; recording of additional capital made without deposit; or an amount that exceeds the number of paid-in shares received or obtained by the shareholders due to the repurchase of shares by the company concerned.

Also included in the definition of dividend is the full or partial repayment of the paid-in capital, if profits were made in the past years, except if the repayment is the result of a legal reduction of the authorized (statutory) capital; payments in respect of the tokens of profit, including those received as redemption for the tokens of profit; share of profits in connection with the ownership of bonds; the share of profits received by the policyholder; and company expenses for the personal use of shareholders which are charged as company expenses.

The distribution or payment of dividends covertly, for example loans given by shareholders to the company in return for exceeding reasonableness. The excess difference between the interest paid and the prevailing market rate is treated as a dividend.

The new regulation regarding the imposition of PPh on dividends will come into effect in the fiscal year 2022. The exemption of PPh on dividends for both individual and corporate taxpayers is expected to be a stimulus for the growth of investors in Indonesia. With the increasing number of investors, it is hoped that the availability of capital in Indonesia will be even greater and can increase the country’s productivity, which in turn will improve the welfare of all Indonesian citizens.